From the Home Office: Our Top 10 Tax Questions List

Join TSC tax columnist Tracy Byrnes and Martin Nissenbaum, national director of personal income-tax planning at Ernst&Young for an hour-long Yahoo! (YHOO Quote) chat on tax planning and e-filing Tuesday, April 4, at 5 p.m. EDT. Register for the Yahoo! Chat at: chat.yahoo.com. It's free!

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Tax Forum has tallied its 10 most requested questions of the season. Unlike a David Letterman list, this one doesn't get funnier as it goes along. But with only 16 days left until April 17, this pseudo-index hopefully will make your crunch time a bit easier.

10. How are QQQs Taxed?

The Nasdaq 100 tracking stock (QQQ Quote), introduced last year, has been one of the hottest topics we've written about.

When you buy the QQQ, you actually are investing in a unit investment trust that holds shares of the companies in the Nasdaq 100 index. Since these things trade like a mutual fund, the tax rules are very similar.

9. What Investment-Related Expenses Can I Deduct?

Anything that you pay for and helps you make investment decisions is deductible, so don't forget your TSC subscription! Remember, these investment-related expenses are deductible only once they exceed 2% of your adjusted gross income.

Read this story for more details.

For an explanation of the deductibility of brokerage fees in IRAs and taxable accounts, see this Tax Forum.

8. How Do I Report Option Trades?

Report your option trades on Schedule D - Capital Gains and Losses just like your stock trades. Click here for some illustrative examples.

Remember, options on broad-based indices, like the S&P 500, are subject to the 60/40 rule, which says that 60% of your gains or losses are treated as long-term and the remaining 40% are treated as short-term, regardless of the time held. And that rule applies regardless of whether your positions are open or closed at year-end.

7. How Do I Report My Short Sales?

When you enter a short sale you borrow a security from a broker and then sell it. Later on you buy the stock back, hopefully at a lower price, and return it to your broker. Only when the short position is closed -- i.e., the stock is delivered back to the broker -- is there a reportable taxable event.

What happens when your short position is still open at year-end? Read this for an illustration.

And just because you're short doesn't mean you can duck the wash-sale rule. We covered this in a recent Tax Forum.

6. Must I Input All My Trades in Schedule D?

If your broker's statement has everything the Internal Revenue Service needs (i.e. date purchased, date sold, proceeds and cost) or you've created a similar schedule, then all you have to do is attach it to your tax return.

Check out our story on Mike Bauer's tax return for the logistics.

5. Can I Mark My Trades to Market?

As a trader, you have the option of marking your trades to market, which means you must value your holdings as though they were sold at fair market value on the last business day of the tax year.

But you needed to make this election on your 1998 tax return to do so for the 1999 tax year.

If you did, read this story from our Taxes for Traders series for the details on how to indicate the mark-to-market election on your 1999 tax return.

Big note: Traders who use tax preparation software will have to overrride some numbers to report this election properly.

4. How Do I Report Margin Interest?

Margin interest is a miscellaneous itemized deduction. It's not added to the cost basis of the stock. Read this Tax Forum for more details.

But traders are entitled to a 100% deduction of their margin trading interest on a Schedule C -- Profit or Loss from Business.

3. Am I a Trader?

Only you know the truth. Here are guidelines, but nothing is written in stone:

If I asked what you did for a living, what would you say?

Other requirements: You only trade for your own personal account and do your own trading. You take advantage of market swings and hold your securities for a short period of time, around 30 days at most.

Read this story from our Taxes for Traders series for more details and the corresponding case law.

Then check out these Tax Forums that answer such age-old questions as: Can I have two jobs and be a trader? and What if my wife has a 'real" job?

If you're still unsure, email trader tax specialist Ted Tesser and request his free "Trader or Investor?" questionnaire.

2. How Do I Report My Roth Contribution or IRA Rollover?

This story will show you exactly how.

But if all you did in 1999 was make a contribution to your Roth IRA, you don't have to report a thing to Uncle Sam. You still should fill out the worksheet on page 6 of the instructions Form 8606 -- Nondeductible IRAs to keep track of your cost basis in your Roth.

1. What the Heck is the Wash Sale?

Here's the lowdown: If you sell a security at a loss, you can't deduct the loss on your tax return as long as you acquire a "substantially identical" security 30 days before or after the sale.

Check out our mega-piece on this rule for all the gory details.

Then click back to Mike Bauer's return to see how to report a wash sale on your Schedule D.

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Send your questions and comments to [e-mail], and please include your full name. Tax Forum appears daily through April 17.

TSC Tax Forum aims to provide general tax information. It cannot and does not attempt to provide individual tax advice. All readers are urged to consult with an accountant as needed about their individual circumstances.